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In this article by the Associated Press, they discuss how the new acting attorney general, Matthew Whitaker, made repeated statements in opposition to then presidential candidate, Hilary Clinton, while speaking for a group that is barred by its tax-exempt status from supporting or opposing political candidates during campaigns. Whitaker was the president and executive of the Foundation for Accountability and Civic Trust, a nonpartisan charitable organization before working for the Justice Department. The Foundation for Accountability and Civic Trust describes itself as a nonpartisan government watchdog promoting ethics and transparency. The organization's 501c3 status prohibits the organization from promoting one political candidate over another. In a few newspaper opinion pieces where Whitaker was identified as FACT’s leader, he criticized Hilary Clinton for the use of her private email server and for appointing her charity’s donors to boards of the State Department when she was Secretary of State. Whitaker was also quoted on a radio interview saying, “I don’t think anybody in the history of our country that served in the administration has been this bold in their private fundraising and their sort of giving favors.” Daniel Borochoff, the president of CHarityWatch said that statement appears to violate the IRS ban on engagement for or against a political party because it was highly critical of a political candidate. To read the full article, click here: https://www.nytimes.com/aponline/2018/11/11/us/politics/ap-us-whitaker-partisan-charity.html

In this article, Robert Lee discusses the major tax concerns charities are facing. The first concern is unrelated business taxable income. Charities are concerned about how the IRS will implement new tax code section 512(a)(6), which requires charities to report taxable income that a charity regularly receives from businesses not substantially related to its charitable mission for each separate trade or business. On August 21, the IRS released some guidance on this issue, proposing that nonprofits use the North American Industry Classification System to help identify separate businesses for calculating their income. The second concern is fringe benefits. Section 512(a)(7) subjects certain transportation and parking fringe benefits to the unrelated business income tax rate at 21%. To learn more about the other major concerns facing nonprofits after the 2018 tax reform, click here: https://biglawbusiness.com/three-top-tax-concerns-still-facing-charity-sector/

This article discusses counter-arguments for people who think nonprofits should be taxed. The first counter-argument is to argue that nonprofits should be taxed like their for-profit counterparts. For-profit businesses are taxed on their net profits, or the amount they make after expenses are deducted. Since most nonprofits spend their profits on the programs they run, there is no profit to be taxed on. According to the Urban Institute, “in 2012, the entire nonprofit sector made about $2.26 trillion in revenues and spent $2.10 trillion in expenses.” The second counter-argument is that nonprofit already pay certain taxes. Nonprofits pay pay-roll taxes and sales tax on supplies needed to run their organizations. To learn about why nonprofits should not be taxed, click here: http://nonprofitaf.com/2017/06/so-you-think-nonprofits-should-be-taxed/

A Press Release from the U.S. Attorney's Office, Western District of Missouri:

Former Charity CEO Pleads Guilty to Multi-Million-Dollar Political Corruption Scheme

SPRINGFIELD, Mo. – The former CEO of a charity headquartered in Springfield, Missouri has pleaded guilty to her role in a multi-million-dollar political corruption scheme that involved bribes and campaign contributions for elected public officials in Missouri and Arkansas, announced U.S. Attorney Tim Garrison of the Western District of Missouri and Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division.

Marilyn Luann Nolan, 68, of Springfield, pleaded guilty before U.S. Magistrate Judge David P. Rush on Friday, Nov. 9, to one count of conspiracy to embezzle and misapply the funds of a charitable organization that received federal funds.

By pleading guilty, Nolan admitted that she conspired with others from 2008 to June 30, 2017, to misapply millions of dollars of the charity’s funds for substantial, undisclosed payments to lobbying firms and political advocates, monetary and in-kind contributions to the campaigns of candidates for public office, and to bribe public officials. Nolan also admitted that she knew her co-conspirators defrauded the charity in order to enrich themselves, and her.

Nolan began working at Alternative Opportunities Inc., in 1992. In 2015, that company merged with Preferred Family Healthcare Inc., after which it continued to be known as Preferred Family Healthcare. Nolan was the chief executive officer and oversaw the charity’s lobbying and governmental affairs activities.

Preferred Family Healthcare and its subsidiaries provided a variety of services to individuals in Missouri, Arkansas, Kansas, Oklahoma and Illinois, including mental and behavioral health treatment and counseling, substance abuse treatment and counseling, employment assistance, aid to individuals with developmental disabilities and medical services.

Political Advocacy, Campaign Contributions, Fund-Raising Events

According to the plea agreement, Nolan and her conspirators caused the charity to misapply its funds to pay for political advocacy, including lobbying, that violated both IRS rules governing tax-exempt organizations, and federal laws and regulations governing recipients of federal grants and contracts. Nolan admitted that she directed and assisted her co-conspirators to direct millions of dollars to lobbyists, including Donald Andrew Jones and Milton Russell Cranford, who previously entered pleas of guilty to federal crimes in related cases. Nolan also directly lobbied legislators.

Under her plea agreement, Nolan also admitted that she and her conspirators:

• Caused the charity to contribute financially to the campaigns of candidates for public office through “straw donors,” including the charity’s lobbyists, who were also reimbursed by way of invoices that were falsely described as “training” and “consulting” expenses;

• Encouraged charity employees to contribute to candidates for public office and caused the charity to reimburse them for those contributions by providing funds falsely described as reimbursement for travel or other expenses the employees had not actually incurred; and

• Caused the charity to provide in-kind contributions to the campaigns of candidates for public office, including in Missouri where they organized fundraisers for several candidates running for seats in the Missouri State Senate, Missouri House of Representatives, and the Greene County Commission and in Arkansas, Nolan and her conspirators organized fundraisers (often at hotels or restaurants) for many candidates running for seats in the Arkansas State Senate and Arkansas House of Representatives.

Nolan also admitted as part of her plea to directing an employee to use the charity’s resources to arrange for catering, liquor, decorations, and other food connected to political fundraisers. This employee used a charity-issued corporate credit card for the purchases, with Nolan’s knowledge.

At all times relevant to Nolan’s plea, the charity was absolutely prohibited from directly or indirectly participating in, or intervening in, any political campaign on behalf of, or in opposition to, any candidate for elective public office. Contributions to political campaign funds violated this prohibition, and could have resulted in denial or revocation of tax-exempt status and the imposition of certain excise taxes.

Bribery of Elected Public Officials

According to the plea agreement, Nolan and her conspirators misapplied some of the charity’s funds to bribe elected public officials in the following manners:

• They gave things of value to numerous public officials, in exchange for their official actions benefitting the charity and themselves personally, including cash, travel and entertainment, premium tickets to sporting events, hotel accommodations, and use of the charity’s luxury/recreational real estate;

• They hired public officials and the family members of public officials as charity employees; and

• Nolan and the conspirators disguised bribes as contract payments for things such as consulting, training, and legal services.

The government believes the schemes Nolan pleaded guilty to totaled approximately $6 million. The parties reserved the right in the plea agreement to litigate the exact amount of that loss, for the purpose of computing the federal sentencing guidelines.

Charity Embezzlement

As part of her plea agreement, Nolan also admitted that over an approximately 12-year period from 2005 to 2017, certain charity executives embezzled millions of dollars from the charity, from which Nolan profited. Nolan admitted that although she did not know the full details of the many embezzlement and misapplication of funds schemes, she knew at the time that the charity bore additional costs from many of those transactions, and willfully blinded herself regarding the details of her conspirators’ schemes and artifices to defraud the charity.

One example referenced in Nolan’s plea agreement consisted of the formation of an LLC that was used as the management company for Alternative Opportunities, identified in court documents as Entity A. In 2006, Entity A was sold to a publicly-traded corporation identified in court documents as Company A, which was also partly owned by Nolan. Nolan admitted that this sale was perpetrated for the primary purpose of enriching charity executives, including herself. Nolan’s share of the proceeds from the sale of Entity A to Company A was $3,769,536.

Nolan further admitted as part of her plea that she also received $361,574 from two LLCs identified as Entity B and Entity C where, immediately prior to the 2006 sale of Entity A to Company A, Entity B acquired title to all real estate formerly held by Entity A and Entity C held the title to the corporation’s headquarters building in Springfield, and duplex homes located in Springfield.

Under the terms of Friday’s plea agreement, Nolan must pay $4,131,111 in restitution to the government, less a credit for taxes she paid on the funds received.

Under federal statutes, Nolan is subject to a sentence of up to five years in federal prison without parole. The maximum statutory sentence is prescribed by Congress and is provided here for informational purposes, as the sentencing of the defendant will be determined by the court based on the advisory sentencing guidelines and other statutory factors. A sentencing hearing will be scheduled after the completion of a presentence investigation by the United States Probation Office.

This case is being prosecuted by Assistant U.S. Attorney Steven M. Mohlhenrich, and Trial Attorney Marco A. Palmieri with the Public Integrity Section of the Department of Justice. It was investigated by IRS-Criminal Investigation, the FBI, and the Offices of the Inspectors General from the Departments of Justice, Labor, Veterans Affairs, and the Federal Deposit Insurance Corporation (FDIC). This is a combined investigation with the Western District of Arkansas, the Eastern District of Arkansas, and the Public Integrity Section of the Department of Justice.

In response to my post last week regarding Church campaign intervention, John Pomeranz was kind enough to send me a picture of the infamous ad that was the basis of the Branch Ministries, Inc. case. I thought I would share it.

In this article, the National Council for Nonprofits discusses how some cities attempt to impose discriminatory taxes or fees on nonprofit entities. In every state the property that is owned by charitable organization are exempt from property taxes. However, some cities try and get around the nonprofit tax exemption by demanding charitable organizations make voluntary payments in lieu of taxes, PILOTs for short. “Threats to property tax exemptions come in many forms from all branches of government: state and local legislative bodies trying to rewrite the rules, executive branch tax assessors seeking to reclassify exempt property, and judges trying to legislate from the bench.” One example of these threats to property tax exemption came in June 2015, where a New Jersey tax court judge revoked the property exemption of a major hospital. In his view, modern nonprofit hospitals do not look like the charity hospitals of the past and no longer deserve tax exempt status. To read about more threats to charitable organization’s tax exempt status, click here: https://www.councilofnonprofits.org/trends-policy-issues/property-sales-and-other-taxes

This article by the National Council of Nonprofits is centered around an issue that the Council believes needs to be changed, the volunteer mileage problem. Currently, volunteers who drive their vehicles while performing duties for a nonprofit are only permitted to deduct 14 cents per mile. This law is set in statute and has not been changed in many years. Also, volunteers who get reimbursed for their miles by the charity they volunteer for must pay income taxes on any amount in excess of 14 cents per mile. The Charitable Mileage Rate is lower than the Standard Business Mileage Rate that some employers pay their employees for miles driven while working. The National Council of Nonprofits believes that Congress should eliminate the distinction between the different rates for charitable organizations and businesses, so there is only one rate that’s set the same way by the IRS. To learn more about this problem that nonprofits are facing, click here: https://www.councilofnonprofits.org/trends-policy-issues/volunteer-mileage

From 2013 to 2017, nearly 1 in 5 of the nation's 5,500-plus hospitals were acquired or merged with another hospital, according to Irving Levin Associates, a health care analytics firm in Norwalk, Conn. Industry analysts say for-profit hospital companies are poised to grow more rapidly as they buy up both for-profits and nonprofits — potentially altering the character and role of public health-oriented nonprofits. Nonprofit hospitals are exempt from state and local taxes. In return, they must provide community services and care to poor and uninsured patients — a commitment that is honored to varying degrees nationwide. Of the nation's 4,840 general hospitals that aren't run by the federal government, 2,849 are nonprofit, 1,035 are for-profit and 956 are owned by state or local governments, according to the American Hospital Association. In 2017, 29 for-profit companies bought 18 for-profit hospitals and 11 not-for-profits, according to an analysis for Kaiser Health News by Irving Levin Associates.

The Internal Revenue Service, Department of Labor, and Department of Health and Human Services issued final regulations on November 7 pertaining to the exemptions based on sincerely held religious beliefs from the Affordable Care Act's requirement that certain entities provide coverage for contraceptive services. Here is the summary:

The primary purpose of this rule is to finalize, with changes in response to public comments, the interim final regulations with requests for comments (IFCs) published in the Federal Register on October 13, 2017 (82 FR 47792), “Religious Exemptions and Accommodations for Coverage of Certain Preventive Services Under the Affordable Care Act” (the Religious IFC). The rules are necessary to expand the protections for the sincerely held religious objections of certain entities and individuals. The rules, thus, minimize the burdens imposed on their exercise of religious beliefs, with regard to the discretionary requirement that health plans cover certain contraceptive services with no cost-sharing, a requirement that was created by HHS through guidance promulgated by the Health Resources and Services Administration (HRSA) (hereinafter “Guidelines”), pursuant to authority granted by the ACA in section 2713(a)(4) of the Public Health Service Act. In addition, the rules maintain a previously created accommodation process that permits entities with certain religious objections voluntarily to continue to object while the persons covered in their plans receive contraceptive coverage or payments arranged by their health insurance issuers or third party administrators. The rules do not remove the contraceptive coverage requirement generally from HRSA's Guidelines. The changes being finalized to these rules will ensure that proper respect is afforded to sincerely held religious objections in rules governing this area of health insurance and coverage, with minimal impact on HRSA's decision to otherwise require contraceptive coverage.

The final regulations are about 95 pages (single spaced). Here is some of what the preamble says about nonprofit organizations:

F. Nonprofit Organizations (45 CFR 147.132(a)(1)(i)(B))

The exemption under previous regulations did not encompass nonprofit religious organizations beyond one that is organized and operates as a nonprofit entity and is referred to in section 6033(a)(3)(A)(i) or (iii) of the Code. The Religious IFC expanded the exemption to include plans sponsored by any other “nonprofit organization,” §147.132(a)(1)(i)(B), if it has the requisite religious objection under §147.132(a)(2) (see §147.132(a)(1)(i) introductory text). The Religious IFC also specified in §147.132(a)(1)(i)(A), as under the prior exemption, that the exemption covers “a group health plan established or maintained by … [a] church, the integrated auxiliary of a church, a convention or association of churches, or a religious order.” (Hereinafter “houses of worship and integrated auxiliaries.”) These rules finalize, without change, the text of §147.132(a)(1)(i)(A) and (B). The Departments received comments in support of, and in opposition to, this expansion. Some commenters supported the expansion of the exemptions beyond houses of worship and integrated auxiliaries to other nonprofit organizations with religious objections (referred to herein as “religious nonprofit” organizations, groups or employers). They said that religious belief and exercise in American law has not been limited to worship, that religious people engage in service and social engagement as part of their religious exercise, and, therefore, that the Departments should respect the religiosity of nonprofit groups even when they are not houses of worship and integrated auxiliaries. Some public commenters and litigants have indicated that various religious nonprofit groups possess deep religious commitments even if they are not houses of worship or their integrated auxiliaries. Other commenters did not support the expansion of exemptions to nonprofit organizations. Some of them described churches as having a special status that should not be extended to religious nonprofit groups. Some others contended that women at nonprofit religious organizations may support or wish to use contraceptives and that if the exemptions are expanded, it would deprive all or most of the employees of various religious nonprofit organizations of contraceptive coverage.

After evaluating the comments, the Departments continue to believe that an expanded exemption is the appropriate administrative response to the substantial burdens on sincere religious beliefs imposed by the contraceptive Mandate, as well as to the litigation objecting to the same. We agree with the comments that religious exercise in this country has long been understood to encompass actions outside of houses of worship and their integrated auxiliaries. The Departments' previous assertion that the exemptions were intended to respect a certain sphere of church autonomy (80 FR 41325) is not, in itself, grounds to refuse to extend the exemptions to other nonprofit entities with religious objections. Respect for churches does not preclude respect for other religious entities. Among religious nonprofit organizations, the Departments no longer adhere to our previous assertion that “[h]ouses of worship and their integrated auxiliaries that object to contraceptive coverage onreligious grounds are more likely than other employers to employ people of the same faith who share the same objection.” (78 FR 39874.) It is not clear to the Departments that the percentage of women who work at churches that oppose contraception, but who support contraception, is lower than the percentage of woman who work at nonprofit religious organizations that oppose contraception on religious grounds, but who support contraception. In addition, public comments and litigation reflect that many nonprofit religious organizations publicly describe their religiosity. Government records and those groups' websites also often reflect those groups' religious character. If a person who desires contraceptive coverage works at a nonprofit religious organization, the Departments believe it is sufficiently likely that the person would know, or would know to ask, whether the organization offers such coverage. The Departments are not aware of federal laws that would require a nonprofit religious organization that opposes contraceptive coverage to hire a person who the organization knows disagrees with the organization's view on contraceptive coverage. Instead, nonprofit organizations generally have access to a First Amendment right of expressive association and religious free exercise to choose to hire persons (or, in the case of students, to admit them) based on whether they share, or at least will be respectful of, their beliefs. In addition, it is not at all clear to the Departments that expanding the exemptions would, as some commenters asserted, remove contraceptive coverage from employees of many large religious nonprofit organizations. Many large religious nonprofit employers, including but not limited to some Catholic hospitals, notified the Department under the last Administration that they had opted into the accommodation and expressed no objections to doing so. We also received public comments from organizations of similar nonprofit employers indicating that the accommodation satisfied their religious objections. These final rules leave the accommodation in place as an optional process. Thus, it is not clear to the Departments that all or most of such large nonprofit employers will choose to use the expanded exemption instead of the accommodation. If they continue to use the accommodation, their insurers or third party administrators would continue to be required to provide contraceptive coverage to the plan sponsors' employees through such accommodation. Given the sincerely held religious beliefs of many nonprofit religious organizations, some commenters also contended that continuing to impose the contraceptive Mandate on certain nonprofit religious objectors might also undermine the Government's broader interests in ensuring health coverage by causing some entities to stop providing health coverage entirely. Although the Departments do not know the extent to which that effect would result from not extending exemptions, we wish to avoid that potential obstacle to the general expansion of health coverage.

I had the pleasure of speaking to a reporter this morning. He wanted to know if the picture above, a sign posted on the front lawn of the Grace of God Church in New Port Richey, Florida on election day violated the 501(c)(3) prohibition against campaign intervention. The Church, by the way, was also a polling place so the Pastor who placed the sign was careful that it was not within 100 feet of the church, proper. Still, it was on the Church ground, posted on election day even, and the Pastor told the reporter that if he changed the mind of at least one voter, he would be satisfied. The sign was also posted, and then removed after voter outcry, from the Church' Facebook page.

The reporter and I spoke by phone as he told me where to look online for a picture of the sign. As I pulled it up, I couldn't help howling in laughter. We talked a bit about the Service's general reluctance to enforce the prohibition against houses of worship because of obvious First Amendment concerns but I concluded that this is probably the easiest case since Branch Ministries took out a full page advertisement in USA Today (I wish I had a picture of that advertisement) exhorting Christians not to vote for Bill Clinton. I allowed that when Pastors preach about particular issues on any given Sunday (farther in time from election day the better) and perhaps even condemn politicians who support or oppose positions implicating spiritual teachings, they can probably count on some degree of protection from the First Amendment. But the sign above is an easy case. The Pastor seems to know this now because in the aftermath of election day he has tried to explain that the sign conveys a purely spiritual message, a verbal tap dance that evoked another round of laughter from me. In a Tampa Bay Times article yesterday, the Pastor is quoted thusly:

[Pastor] Carlisle said his sign isn’t meant to discourage voting for Democrats but to discourage doing so while claiming to be Christian. “I’m not saying don’t (vote Democrat),” he said, taking specific issue with progressive support for abortion rights and of the LGBTQ community. “I’m saying don’t be a contradiction.” He also criticized Democrats in favor of open borders, saying they oppose Christian values in the Bible, which he said explains that God established borders for the Garden of Eden. If people are offended by his sign, Carlisle said, they have a problem, not him. And their problem is with God.

The signs says "Don't vote for Democrats," but "I'm not saying don't vote Democrat." Hmmmmm! I suppose I am able to laugh about the whole thing because as much as I oppose "Agent Orange" (yes, this is my bias showing), the last policy initiative of his I worry about is the rhetoric concerning the repeal of what he calls "the Johnson Amendment." I guess I am closer to a First Amendment purest than not and, and as a practical matter, I think the prohibition is hardly worth the trouble. Church campaign intervention happens every election season from the Left and the Right. Politicians love to visit congregations on Saturday or Sunday mornings right before elections and it is always pretty clear who the Church supports. In any event, I concluded that the Church can probably expect a sternly worded "don't do that again!" from the Service, though the amount of national attention its getting seems akin to the attention drawn to Branch Ministries and that might trigger revocation proceedings if only because revocation would be so easy and would allow the Service to show that it actually enforces the law in the easy cases.

Thanks to my co-bloggers Lloyd Mayer and Darryl Jones for the excellent postsyesterday on Election Day related material. Reading their posts got me thinking about yesterday’s results, and specifically how they might impact charities. Clearly, I think we will see some impact on the tax side of the charitable world. With the new Democratic majority in the House of Representatives, it appears that Richard Neal of Massachusetts will take over as the Chairman of the House Ways & Means Committee. In addition, apparently a number of Republicans who were on the Committee who wrote the TCJA either retired or were defeated, which should result in significant turn over on the Committee.

Most news coverage this morning is centering on whether the House will now request President Trump’s tax returns, but it is easy to forget that Tax Reform 2.0 is pending, as well as the potential for additional middle-class centered tax cuts. For example, it appeared that the House was strongly considering making permanent some of the individual tax cuts that sunset in 2026 under the TCJA – specifically including the changes to the standard deduction, the personal exemption, and the SALT cap – that potentially impacted the tax incentives for charitable giving. One guess is that the SALT cap (see my brief post on this from Monday) might be ripe for change and politically popular, even among some Republicans. My gut tells me there probably won’t be changes to the executive compensation excise tax, but maybe to the college and university endowment tax – those may be a matter of making the numbers work. And finally, although it didn’t make it into the TCJA, I also wonder if this stops any momentum to change the Johnson Amendment. I’ll be curious to see if some of the recent language that has made it into the annual budget acts limiting IRS authority with regard to enforcing the Johnson Amendment will remain in future acts.

But these are just my Wednesday random musings over my first (and second) cups of coffee (and of course, your results may vary and these are my own thoughts, etc. etc.) – I’m wondering if anyone see the potential for any other, especially non-tax, impacts.

It's appropriate on Election Day to provide some updates on recent FEC and IRS actions relating to political activity, as well as new about reduced NRA political spending and a CREW complaint against a politically active 501(c)(4).

On the election law/FEC side of things, in the wake of a federal District Court order vacating a disclosure regulation (and higher courts not staying the decision), the FEC has issued guidance providing that entities making independent expenditures (i.e., express advocacy not coordinated with a candidate or political party) after Sept. 18, 2018 must publicly disclosure the identities of donors who contributed more than $200 in the calendar year (in aggregate) if the contributions were received after August 4, 2018 and were made for the purpose of furthering any independent expenditure. For more details, see the published guidance. Coverage: Washington Post.

On the tax law/IRS side of things, the Chief Counsel to the IRS concluded that an Internal Revenue Code section 501(c)(4) social welfare organization that made admitted making expenditures in support of a candidate for elective public office was a "political party" under section 271 and so a taxpayer who made a loan to the 501(c)(4) that was not repaid was unable to take a worthless debt deduction under section 166. The taxpayer loaned money to the 501(c)(4) in one year, only to have the 501(c)(4) dissolve in the next year without repaying the loan. The 501(c)(4) reported on its annual information return that it was engaged in political campaign activity in connection with a certain candidate, which Chief Counsel held was sufficient to make the organization a "political party" within the meaning of section 271 (regardless of the organization's classification under any other Code section). Coverage: Thomson Reuters.

In other news about loans to 501(c)(4)s, Bloomberg reports that the NRA is facing a cash crunch that has led to both reduced political spending this election cycle and borrowing funds from numerous sources, including $5 million from its section 501(c)(3) charitable affiliate (at a presumably market interest rate of seven percent).

And in a complaint filed with the IRS, CREW asserts that section 501(c)(4) America's Renewable Future, Inc. failed to file annual information returns (Form 990) for 2015 and 2016 even though it filed such a return for 2014 and had extensive issue advocacy activities in both later years. This is only the latest CREW complaint along these lines, as it has previously filed such complaints against other 501(c)(4)s, including the American Policy Coalition and Freedom Frontier. Hat tip: EO Tax Journal.

Researches have published a study entitled "The Politics of Donations: Are Red Counties More Donative Than Blue Counties?" one of the interesting conclusions of which indicate that as political competition increases within counties, charitable giving decreases most likely because donors worry that their donations will be used to support causes of which they disapprove along political lines. Here is the summary:

This article integrates parallel literatures about the determinants of redistribution across place. Using regression-based path analysis, we explore how tax burden mediates the relationship between political conditions and charitable contributions. Our analysis indicates that counties with a higher proportion of people voting Republican report higher charitable contributions, and tax burden partially mediates this relationship. However, the effect of political ideology on charitable contributions is nonlinear. As the proportion voting Republican in non-Republican-dominated counties increases, the predicted levels of charitable giving actually decreases. In contrast, as the proportion voting Republican increases in Republican-dominated counties, charitable contributions increase. Higher levels of political competition decrease charitable giving, again with partial mediation by tax burden. We also find that the “crowding in” effect of lower tax burdens on charitable giving only partially compensates for the loss of public revenue. Ultimately, total levels of redistribution—both private and government—are higher in Democratic-leaning counties.

The SALT/170 Proposed Regulations issued on August 27, 2018 had their day in the court of public opinion today – that being the public hearing held at 10:00 A.M. today at the IRS. I am still trying to find video or a transcript of the hearing (I will update the post with a link should I find one or if any kind reader passes one my way.)

If you aren’t familiar with these Regulations, they were described in this post (which includes many, many links to commentary by lots of smart people). An additional post highlights further commentary by Andy Grewal regarding the significant flaws in the Proposed Regulations (both posts by my co-blogger, Lloyd Mayer.)

Richard Rubin of the Wall Street Journal did live tweet the hearing (his Twitter feed can be found here, which you should follow anyway if you are tax type.) According to him, there were 24 speakers signed up, including an 8th grader talking about the benefits of private school. From Rubin's description, many of the speakers were specifically objecting to the treatment of state level education credit programs. In addition, it appears that 7,749 comments were received on the www.regulations.gov website.

Rubin noted that at the end of the hearings, Scott Dinwiddie of the IRS was quoted as saying, “We have our work cut out for us.” If you believe the underlying theory advanced by the IRS, then I’m not sure what work needs to be done, as they did take a pretty straightforward stance on it all. I’ll be curious to see what direction the final regs take…

UPDATE: Thanks to Mr. Linville in the comments, who provided a link for the hearing transcript, so please see below.

The Catholic Church is coping with mass tort liability for sexual abuse of children by priests. Since 2004, eighteen Catholic organizations have filed for relief in bankruptcy. Fifteen debtors emerged from bankruptcy after settling with sexual abuse claimants and insurers. During settlement negotiations, sexual abuse claimants and debtors clashed over the extent of the debtors’ property and ability to pay claims. Although such disputes are common in chapter 11 plan negotiations, the Catholic cases required the parties and bankruptcy courts to account for unique religious attributes of Catholic debtors. This article reviews the arguments and outcomes on property issues based on reported decisions, pleadings, plans, and disclosure statements. It explains the key characteristics of Catholic dioceses under canon and secular organization law and the bankruptcy contexts in which these characteristics became hot button issues. It offers an analysis of the legacy of the Catholic cases for bankruptcy law, religious liberty, and for the relationships among entities within a Catholic diocese.

According to BBC News, early last month the Pakistani government ordered eighteen international nongovernmental organizations to end their operations and leave the country within 60 days. Among those charities are ActionAid UK, a development organization that works with women and girls living in poverty, and Plan International USA, a development organization that focuses on communities. While previous attempts to force ActionAid and other organizations to leave Pakistan failed in the face of diplomatic pressure from Western government, the most recent report indicates that this attempt is still proceeding.

Sam Brunson (Loyola-Chicago) has posted NonBelief Relief and Form 990 on The Surly Subgroup. In this post he describes and analyzes the latest legal challenge from the Freedom from Religion Foundation to the tax benefits enjoyed by churches and other houses of worship. More specifically, this just-filed lawsuit claims that the exemption for such entities from the annual information return requirement applicable to almost all other entities that are exempt from federal income tax under section 501 of the Internal Revenue Code is a violation of the Establishment Clause of the Constitution. The vehicle for this challenge is a secular charity established by the Foundation, NonBelief Relief, that (presumably intentionally) failed to file a Form 990 for three consecutive years and so has now had its exemption revoked by the IRS. Cutting to the chase (see the post for more details), Brunson thinks there is a case here but that "it seems like Congress could enact an exemption like this to avoid the risk of impermissible entanglement" and the exemption is "at least a viable candidate" for a constitutionally permissible accommodation of religion.

In Losantiville Country Club v. Commissioner, the U.S. Court of Appeals for the Sixth Circuit had to consider whether the U.S. Tax Court properly denied a section 501(c)(7) social club's attempt to apply losses from its nonmember events to offset its investment income and so avoid tax on that income. While the nonmember events had lost money during each of the 14 previous years (2002 to 2015), the Sixth Circuit held that the Tax Court had improperly treated that fact as conclusively establishing that those events did not constitute a trade or business. The Sixth Circuit instead held that the key issue is "intent to profit," for which profitability (or the lack thereof) is relevant but not determinative. Instead, the court looked to the factors listed in the "hobby loss" regulations under section 183 as providing relevant other considerations to the extent they applied to a tax-exempt nonprofit. Although normally this legal standard error would require remand, here the Sixth Circuit found that the factual record was complete and uncontested and so it could simply apply the correct legal standard to that record. When it did so, it found the lengthy history of losses combined with no evidence of attempts to stem those losses or of any other countervailing facts demonstrated a lack of the necessary profit motive. The Sixth Circuit also affirmed the imposition of the 20 percent accuracy-related penalty, finding no grounds for holding that the club relied on its accountants in a manner that was either objectively reasonable or in good faith.

The enactment of section 512(a)(6) (requiring siloing of unrelated trades or businesses in order to prevent use of losses from one such trade or business to offset income of another such trade or business) will make determination of whether a given, loss-generating activity is a trade or business less important in the future for tax-exempt organizations. Nevertheless, this decision may still be important to country clubs because Notice 2018-67 (see Section 7) asks for comments regarding how both nonmember activities and investment income for such clubs should be treated under that new section.

Bryan Camp (Texas Tech) has written a TaxProf Blog post commenting on an interesting case out of the U.S. Tax Court. In Wayne R. Felton and Deondra J. Felton v. Commissioner, the court concluded that funds given by parishioners directly to their minister were additional taxable compensation to him and not nontaxable gifts. It also found that penalties applied, given the failure of the taxpayers to show they acted with reasonable cause and in good faith. For more details, see Camp's detailed analysis.

A youth charity founded by Saudi Arabia's crown prince just lost an influential backer, the Bill & Melinda Gates Foundation, in the latest sign of fallout after the killing of journalist Jamal Khashoggi. The charitable organization started by the Microsoft co-founder and his philanthropist wife is canceling much of its $5 million pledge to the MiSk Foundation, a Saudi youth empowerment nonprofit chaired by Crown Prince Mohammed bin Salman. Last week, a Saudi prosecutor acknowledged for the first time that agents of the kingdom planned Khashoggi's slaying at the Saudi consulate in Istanbul, Turkey. The prosecutor initially said the Washington Post columnist and U.S. resident was unintentionally killed during a physical altercation. The Saudis earlier claimed Khashoggi, a critic of Prince Mohammed, left the consulate unharmed. . . . Virgin Group co-founder Richard Branson, another high-profile philanthropist, has also in light of Khashoggi's killing.